Impact of the Global Financial Crisis on China: Empirical Evidence and Policy Implications

Abstract This paper applies a structural vector autoregression analysis to quantify the impact of the global financial crisis on China. It is found that the impact is indeed sizeable: a 1‐percent decline in economic growth in the USA, the EU and Japan is likely to lead to a 0.73‐percent decline in growth in China. The article discusses whether the current measures of fiscal stimulus are adequate to offset the sharp decline in external demand. Although there is little doubt that the massive fiscal stimulus will largely offset the significant shortfalls in external demand, the current growth pattern in China will be increasingly unsustainable in the long term. China's reform cycles suggest that external shocks are often opportunities for structural reforms. Therefore, the crisis could also be a catalyst for rebalancing China's economic structure so as to return the economy to a sustainable path.